CRM for Telecoms, Part 1: Getting More Strategic

While telecom operators willingly spend hundreds of millions to upgrade facilities, it is not at all clear that these investments, with long-term paybacks, are the right ones to meet customer demand. In contrast, investment in a CRM tool such as predictive analytics is very modest but generates payback in months -- not years.

By John K. Higgins
04/05/10 5:00 AM PT

Most of today's telecom customers -- who use their phone apps to check the menu at a local eatery or text a friend -- are clueless about the origins of electronic media. Only those holding a Medicare card, perhaps, appreciate that in the early days of phone service, the telephone company's customer relationship management only involved the employment of a local switchboard operator to place calls. And the operator knew everyone in town. Social networking consisted of tapping into a "party line" conversation when there were no private landlines -- let alone personal, wireless cellphones.

Today, telecom managers, working in a highly competitive environment as a result of deregulation, find that effective mass-market CRM is a top priority. Just as improvements in technology led to an explosion of landline phone service, advances in communication systems have generated a huge and growing market for both land-based and wireless services.

With marketing budgets in the multiple-millions, telecom providers have employed sophisticated electronic messaging and direct mail promotion tools to generate and serve customers. Yet most telecom companies are still playing catch-up in their use of CRM.

"The telecom industry in North America is one of leading sectors when it comes to the adoption of software applications for customer management," Chandrababu Naidu, a telecom analyst for
Infiniti Research, told CRM Buyer. "A majority of the companies have been investing in customer management technology to pursue new revenue streams such as the convergence of channels and raising demand for customized services."

A Mixed Bag for CRM

Each player in the telecom sector operates at a different level in terms of an Internet presence -- from providing a sales platform and customer support to various marketing activities. Overall, the sector still comes up a bit short in taking advantage of CRM tools, Naidu said.

"The online sales activities of the telecom operators are relatively low, as compared to other consumer industries. The current level of Internet presence is still not sufficient to sustain customers' needs," he added.

"The use of CRM tools in the telecom sector is kind of a mixed record," Ken King, director of telco and media convergence at SAS Institute, told CRM Buyer. Wireless providers who had experienced unacceptable levels of "churn" between 2000 and 2005 recently embraced CRM in a robust -- but defensive -- mode, using customer analytics and predictive tools to stem attrition to competitors.

"Operators recognized that complex factors drove customers to cancel service," King continued. "By analyzing those factors, using data that predicted potential churn, and developing more effective and efficient campaigns, most major operators made significant progress on customer retention."

On the other hand, traditional wireline operators have failed to stop the demise of landline phone use, despite aggressive and expensive campaigns. Operators have foundered in undertaking mostly ineffective win-back campaigns after customers have already defected.

"In some areas, CRM analytics have provided great value to service providers. In other areas, telecoms are still struggling to escape the 'monopoly' mindsets from the past," said King.

While telecom operators willingly spend hundreds of millions to upgrade facilities, it is not at all clear that these investments, with long-term paybacks, are the right ones to meet customer demand, he added. In contrast, investment in a CRM tool such as predictive analytics is very modest but generates payback in months -- not years.

As the potential for telecom services expands, operators in both the wireline and wireless channels will face increasing competition to hold their current customers as well as add new subscribers. The overall telecom market in North America is huge, valued at US$425 billion in 2008, according to Infiniti. Future growth will occur at a healthy rate, but perhaps at a less frenetic pace than in the past.

In the current sluggish economy, "telecom is as necessary to development as roads and bridges, so we expect it to fare much better than other segments that may take longer to return to normalcy," said Robert Rosenberg, president of
The Insight Group.

However, compared with the recent past, telecom capital spending in North America will be at a reduced rate through 2015, according to a recent Insight report. Among the factors for the slower pace of investment will be increased competition among telecom providers. Telecom revenue "will come under pricing pressure as operators fight for more cost-focused customers," the report notes.

In an increasingly competitive environment, telecom operators will not only need to invest more in CRM techniques. They also will need to make those investments more effective and embrace the full range of CRM potential -- from conventional sales promotion, to generating improved feedback on customers, enhanced analytics, and better use of predictive capabilities, including modeling.

"With the economic slowdown in North America, there will be an increase in the demand for CRM to enhance business growth and revenue by the telecom companies," Infiniti Research said in a 2009 paper on telecom CRM in the North American market.

Among the advantages for using CRM is the ability to develop business opportunities through relationship management and account management, which helps to identify business prospects. Additional features available through CRM are price calculation techniques and deal preparation material useful for sales negotiations. Analytical tools can provide optimum pricing to win over new customers, Infiniti says in the report.

However, the manner in which telecom companies may utilize CRM may change. Instead of investing in large complex projects, as they have done for the last three or four years, telecom operators are shifting to using batches of smaller and more targeted CRM applications oriented to one or two specific tasks, Naidu said.

Opportunity for CRM Vendors

CRM vendors should have ample opportunity to gain from additional investing by the telecom sector. Spending is already at a high level, with North American telecom operators spending $430 million on CRM efforts in 2008, notes Infiniti.

Vendors should be able to capitalize on the trend toward outsourcing of CRM activities by the telecom operators. In order to reduce the overall cost of customer relationship activities, telecom companies are moving to outsource the maintenance of legacy systems to cheaper offshore centers, said Naidu. In addition, telecoms in North America are gravitating to the adoption of managed services for reasons of cost control, simpler administration, and the desire by telecoms to devote more energy to their core businesses.

While differences among the types of telecoms may influence their choice of CRM options, telecoms will remain a major, and growing, consumer of CRM offerings -- if only because competition will compel them to do so.

"Additional customer applications will come along in telecom -- some that we can't even foresee right now," Insight's Rosenberg told CRM Buyer.

"So that will require better customer relations," he concluded. "As a single entity, the sector will be at the forefront of using new tools in their relations with customers."